In this article we give a brief overview of the major cases and themes of 2014, together with a forecast for 2015.
Although a direct insurance case, the decision in Ted Baker Plc v Axa Insurance UK Plc i, which considered a Claims Cooperation Clause, will be of interest to reinsurers too. Eder J approved textbook commentary to the effect that “full particulars” in such a clause means “the best particulars the assured can reasonably give” and further particulars can be supplied later on.
The judge also touched on the difficult issue of whether a (re)insured must comply with claims conditions if a (re)insurer wrongly rejects a claim (amounting to a repudiation of the policy). The clause in this case referred to information which was “reasonably required” but the insurer. It was held that the insurer could not reasonably require documents which would be costly and timely to produce if liability had been wrongly denied. By focusing attention on the policy wording, the judge therefore implied that a (re)insured is still bound to comply with a claims provision even though a claim has been rejected.
There were a number of cases concerning fraudulent claims in 2014. Most noteworthy amongst them was the Court of Appeal decision in Versloot Dredging v HDI Gerling ii, in which it was confirmed (despite some doubt expressed at first instance) that the correct test is whether the fraudulent devices are related to a claim and intended to promote it and that, if believed, they will yield a significant improvement in the insured’s prospects. There were two interesting reinsurance cases in 2014: In Federal Mogul Asbestos Personal Injury Trust v Federal- Mogul Ltd iii, a claims control clause contained an express obligation that the reinsurer should act in a businesslike manner and in good faith. Eder J described this as a “very loose constraint”, excluding only courses of conduct which no similar reinsurer could take. Thus it did not matter if the reinsurers’ decisions end up increasing costs in the long run and that “best practice” had not been followed.
In Tokio Marine Europe Insurance v Novae Corporate iv, a retrocession contract contained an unqualified “follow the settlements” clause and the issue was whether the reinsured had taken all proper and businesslike steps in reaching a settlement. Field J found that there was no prospect of success in arguing that the reinsured had not, even though it had not fully investigated the issue of aggregation under the local policy. That was because the settlement in question had been “undoubtedly a good settlement”.
Looking forward to likely developments in 2015, the most important one is the passing of the new Insurance Act before Parliament is dissolved. Now that Royal Assent has been obtained, the new Act will come into force 18 months from now and will apply to every insurance policy and reinsurance contract written in England and Wales, Scotland and Northern Ireland. Certain clauses have now been omitted: most notably, damages for late payment. The key remaining changes are as follows:
- Basis of the contract clauses will be prohibited (and it will not be possible to contract out of this change) and all warranties will become “suspensive conditions”, capable of remedy (after which an insured can come back “on cover”). Broadly, insurers will no longer have a defence where the breach of a policy term designed to reduce the risk of loss of a particular kind would not have prevented the particular loss in question
- The remedies for non-disclosure and utmost good faith will reflect those now in place for consumer insurance. The knowledge of the insured will be that of senior management or those responsible for the company’s insurance
- Insurers will have an option to terminate a policy with effect from the date of a fraudulent act, without return of premium (thus allowing insurers to refuse to pay any genuine claims thereafter)
The Insurance Act will represent only a default regime for business insurers. If (re)insurers intend to contract out and include a “disadvantageous term”, sufficient steps must be taken to draw that to the (re)insured’s attention before the contract is entered into. Furthermore, an alternative remedy or position will have to be specified, otherwise there will be a void (and the courts are likely to imply back into the contract the position set out in the Act).
One further feature of the Insurance Act is that it is intended to speed up the implementation of the Third Parties (Rights against Insurers) Act which received royal assent back in March 2010 but has never been brought into force. It is believed that the aim is to bring this 2010 Act into force sometime in 2015.